Umbrella Company Employment – How it Works
Umbrella Company Employment – How it Works
As a compliant UK umbrella company, we provide employment to contractors who work on temporary assignments for an end client.
While some assignments are arranged directly with the client, the majority of the contractors we employ work on assignments that have been arranged by a recruitment agency.
As a contractor, you might work on assignments for several different agencies or clients during a single employment with just one umbrella company.
This means you get all the rights, protections and benefits that come with employment, while keeping the freedom and flexibility that make contracting so attractive.
You will be an employee
It must be stressed, because there are some common misconceptions, that a compliant umbrella company offers genuine employment. It’s not a technicality or a trick – our umbrella company employees are genuinely employed by us in every sense of the word. Our responsibilities are the same as those of any conventional employer, and we take them very seriously.
The contractual relationships
As your employer, we’ll set up a contract with the agency or end client to supply your services.
If there is an agency involved, they will have a similar contract to supply your services to the client.
You will have a contract of employment with us, which covers all the assignments you complete during your employment.
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Getting paid for your work
You will follow your client’s timesheet process. This will usually involve some kind of sign-off at your client so they can pay the agreed fee to your agency. Depending on the specific arrangement, you may also need to complete a timesheet for us, so we can raise an invoice for your work, and if you have expenses to claim you will do this through us as well.
Once you’ve completed the work and followed the timesheet process, the client will pay the agency for your work, the agency will pay the agreed contract rate to us, and we will pay you as our employee.
We’ve designed our process to be simple and predictable, so you’ll always know what you need to do and when you can expect to be paid.
Because we’re you’re employer
As well as ensuring that you’re paid correctly, we have certain other responsibilities as your employer. These include making sure your rights as a UK employee are upheld, including your right to paid holiday and access to a workplace pension. We’re also responsible for statutory payments like sick pay and maternity/paternity pay, for your health and safety at work, and we provide the necessary insurances, so you’re covered to work at the client’s premises.
How your pay is calculated
Most of the questions we receive from new umbrella company contractors are about how their pay is calculated. There are some important payment terms and deductions that you need to be aware of, so here is our straight-forward explanation of umbrella company pay.
The assignment fee
The “assignment” or “contract” rate is the amount the agency or end client pay us for your work. This is our income from charging you out as our employee.
Umbrella margin
This is the margin we make from the assignment fee that we charge the agency/client. You’ll see this on page 1 of your pay documents, which is a reconciliation of how we arrive at your gross pay.
Employment costs
These are the costs we have to pay as your employer, including employer’s NI, Apprenticeship Levy, Workplace pension contribution, your paid holiday entitlement and a £2 employment cost relating to our employee wellbeing and benefits platform and our annual insurance policies. Again, these are calculated from the assignment fee that we charge for your work, and you’ll see them on page 1 of your pay documents.
Your gross pay
This is the amount paid to you, before deductions. This will be the assignment rate, less our margin and the employment costs. You’ll see it towards the bottom of page 1, and in the earnings column of page 2 in your pay documents. Page 2 is a standard payslip that you’d expect to receive from any employer.
PAYE deductions
Deductions for income tax (PAYE), Employee National Insurance (NIC) and any employee pension contributions will be made from your gross pay and the remaining amount (your net pay, or take-home pay) will be paid to you. You’ll see all the deductions we’re required to make in the Deductions column on page 2 of your pay documents.
The process in brief
To quickly recap, the process for calculating your pay is:
We charge the agency/client the agreed assignment fee for your work as our employee
We make our margin and cover the employment costs from the assignment fee
The remaining amount is your gross pay
The usual PAYE deductions are made, and the remaining amount is paid to you
